First home owner drives.

Increases in housing supply and economic growth are among the main drivers of growth in first home buyer activity, new data shows.

An analysis of the trends of Australian home buyers taking out the first home owners grant (FHOG) since 2000 has found Victoria, the state with the highest number of dwelling completions since 2009, has shown the biggest growth in first home buyer activity in the past year.

Queensland, another state with a high number of new home completions, is the second highest state for first home buyer lending, Australian Bureau of Statistics data shows.

Housing supply encouraging first home buyers

REA Group Chief Economist Nerida Conisbee says the data shows how increases in housing supply are helping making homes affordable for first home buyers. Economic conditions are also important.

The 2009 first home buyer spike was driven by the GFC stimulus package incentives (First Home Owners Boost), which were released nationwide. The number of first home buyers accessing incentives peaked again in 2013, which can be linked back to various state-based incentives.

Nationally, the proportion of lending to first home buyers has declined since 2013, but there is strong variability across states, which Consisbee says is largely dependent on economic factors.

“According to the CommSec State of the State Report released in April 2016, Western Australia, South Australia and Tasmania are the weakest economic performers. First home buyer activity has also dropped in these states,” she says.

The exception to the trend is in New South Wales, where despite strong growth in dwelling completions and strong economic performance, affordability still remains an issue for first home buyers. Conisbee says New South Wales will need to keep increasing its housing supply if it is to be made more affordable for them.

“Historically, Sydney has been under-supplied for housing. The National Housing Supply Council found back in 2011 that Sydney was the most under-supplied for housing in Australia. This is consistent with the low levels of dwelling completions that have occurred in NSW long-term, particularly compared to population growth.

“Over the past five years, Sydney has seen a big jump in approvals. This has led to more supply moderating price growth. Without this high level of supply, we would see far greater price rises.”

Affordability remains an issue for first home buyers in Sydney, but it could have been worse without the rise in new home supply in the past five years.

Propertyology Director Simon Pressley says that nationally speaking, there is no under-supply crisis.

“To the contrary, the volumes of new housing supply across Australia over the past three years have been at all-time highs and rents have actually eased,” he says.

“With record low interest rates, funding is also readily available for first home buyers who can demonstrate that they’ve been a diligent saver and have sufficient deposit funds.”

The volumes of new housing supply across Australia over the past three years have been at all-time highs.

However, Pressley believes that governments could do more to help first home buyers by considering initiatives such as greater stamp duty concessions and to refrain from limiting initiatives to new properties.

“(Governments need to) empower first home buyers as opposed to designing initiatives with the construction industry interests as the primary motivation.”

First home buyers are currently restricted to purchasing new homes with the FHOG in most states.

Pressley says a state’s economy is definitely an influencer on first home buyers, as it is on buyers more generally.

He says Perth’s property market has been receding with its economy, while Tasmania’s economic improvement over the past two years is on par with NSW, and the Hobart property market is now the tightest in the country.

“There’s 25% less properties for sale in Hobart now compared to a year ago, their vacancy rates and rental yields are better than anywhere else, and property prices are trending north.”

He says both WA and Tasmania previously had state-based initiatives for first home buyers which ceased in the last year, which could be another reason why lending to first home buyers dropped in those states.

“All types of property buyers, not just first home buyers, require job stability and general confidence,” he says.

Pressley says he hasn’t noticed a distinct trend in regards to dwelling styles that first home buyers buy, with the exception of Sydney where affordability constraints often dictate more apartment living.

First home buyers in Sydney could be more likely to purchase apartments as opposed to houses for affordability reasons.

“(Usually) it’s one of those horses-for-courses things where different households have different preferences and circumstances,” he says.

“Given the choice though, a very large majority of first home buyers are more likely to find ‘that property’ which ticks all of their boxes from an established property. The problem with government grants only being available for new property is that it restricts first home buyer choices to a mere 2% of properties.”

Loan size trending downwards

Conisbee says a piece of good news for first home buyers is that nationally, the average loan taken out by first home buyers is now trending downwards and has reached its lowest level since February 2015.

“This partly reflects supply (dwelling completions are very high right now), slowdown in house price growth and a slowdown in lending to investors.”

Consisbee says that building approvals and completions are at record levels, which means that although there have been rises in median house prices, the amount of stock at the affordable end has likely increased.

“In addition, house price growth is moderating nationally as the market turns,” she says. “This is also a likely factor.”